CHINESE President Xi Jinping first proposed the Silk Road Economic Belt during a visit to Kazakhstan in September 2013. In October that year, he went on to propound the 21st Century Maritime Silk Road while on a trip to various ASEAN members. What is now called the Belt and Road Initiative thus took shape.

This ambitious scheme aims to enhance policy dialogue, infrastructure connectivity and flow of trade and capital, as well as amity among peoples along the two routes. Before specifics about the initiative came to light most European countries, being unclear what cooperation would entail, were cool about it. In November 2014, European Commission President Jean-Claude Juncker launched a €315 billion plan to spur investment in infrastructure, new energy and information technology, among other sectors, in Europe. It shares the goal of the Belt and Road Initiative, in terms of boosting cooperation in global productivity capacity. The confluence of European and Chinese interests enables the two programs to intermesh for mutual success.

Investment

The central component of the Juncker Plan is the €21 billion European Fund for Strategic Investment (EFSI). The EU and European Investment Bank are to commit €16 billion and €5 billion respectively to this seed fund, which is expected to achieve a multiplier effect – every euro of public funds will generate 15 euros of total investment to the continent’s real economy. As Juncker sees it, Europe is caught in an investment trap. The private sector has deep pockets, but is hesitant to inject capital into the real economy. Under the dual pressures of deflation and dipping market confidence, Juncker stated that the EU must encourage its member states to contribute to the EFSI, and meanwhile open wider to private and foreign investors. This prospect presents a rare opportunity for Chinese businesses.

Investment and trade are also key pillars of the Belt and Road Initiative. In furtherance of this goal, China has worked to iron out kinks in cross-border investment, such as by reaching bilateral pacts to institutionally protect mutual investment. Chinese government statistics indicate that, by the end of 2014, the volume of China’s direct investment in the EU had reached US $54.21 billion, soaring 35.2 percent from the previous year, and accounting for 6.1 percent of China’s international total (Figure 1).

Strong growth notwithstanding, China is not a leading source of FDI in the EU. According to Eurostat figures, at the end of 2012, China’s direct investment volume to the 27 EU members added up to €27.43 billion, a paltry 0.7 percent of the total FDI the bloc had received. By contrast, the U.S.’s direct investment in the EU was €1,543.64 billion, a whopping 40 percent. This huge gap offers great potential for China. The magnitude of the Juncker Plan’s financing needs and the strong interest of Chinese companies in Europe make it possible for the Juncker Plan and the Belt and Road Initiative to proceed shoulder-to -shoulder and hand-in-hand.

Infrastructure

The Juncker Plan prioritizes financing for strategic long-term projects, such as digital technology, transportation infrastructure, education, innovation and renewable energy. Some overlap with the proposed actions of the Belt and Road Initiative. Thus cooperation is possible in three areas:

First is transportation infrastructure. In May 2013 an agreement was reached in the EU to transform the existing patchwork of European roads, railways, airports and canals into a unified transportation network (TEN-T) by 2030. Similarly, a priority of the Belt and Road Initiative is to advance infrastructure connectivity among countries along the two routes. This is accordingly one area where China and Europe can aptly work together. Better connectivity of infrastructure will in turn galvanize trade and investment relations between the two sides. With China and Europe at either end of the “Belt” and “Road,” an unimpeded overland Silk Road will cut the freight distance, save costs, and render prices more competitive on both sides, consequently increasing the volume of goods entering their respective markets. As the two-way flow of commodities upticks, construction of free trade areas between China and European countries is also expected to gain more headway.

Energy infrastructure is second. In February 2015, the European Commission adopted the Energy Union Framework Strategy, which includes a target of 10 percent inter-linkage of electricity grids across borders, so reducing the EU’s dependence on gasoline and natural gas. The Belt and Road Initiative also aims to intensify regional cooperation in energy facilities, including cross-border electricity supply, and upgrades and renovation of regional power grids. Collaboration between the initiative and the Juncker Plan will open up new opportunities for electricity supply and equipment manufacturing companies on both sides.

Third is digital infrastructure. In March 2015 the EU unveiled the 5G Infrastructure Public Private Partnership, a plan to launch the 5G network between 2020 and 2025. The modern Silk Road China has propounded also envisions trans-country optical fiber networks and better international telecommunications. This shared desire can thus lead to concerted efforts.

Financing

At present, European companies primarily rely on banks for their financing, rather than capital markets. They therefore feel the pinch once banks tighten credit. In order to stabilize the financial market and ensure a wholesome financing environment for long-term projects and medium-sized and small businesses, President Juncker proposed the Capital Markets Union (CMU). Integrating the fragmented markets for capital among member countries into a united whole through this vehicle will reduce financing costs and boost corporate investment confidence.

Smooth financing is a lifeline of the Belt and Road Initiative. China has taken several steps in this direction, such as expanding bilateral currency swaps, and founding the Asian Infrastructure Investment Bank, the New Development Bank BRICS, and the Silk Road Fund. These moves will enhance financial and currency stability in countries along the “Belt” and “Road,” provide the funding needed by the initiative’s projects, and accelerate the internationalization of the RMB. Collaboration in the financial sector by China and the EU is clearly in the interests of both.

Today, leading European financial centers – from London, to Frankfurt, Paris, Luxembourg and Zurich – are scrambling to become RMB offshore centers, sign currency swap deals with China, open RMB clearing banks, increase RQFII (RMB Qualified Foreign Institutional Investors) quotas, and issue offshore RMB bonds (see figure 2). Furthermore, many European countries have joined the Asian Infrastructure Investment Bank. These developments all attest to the deepening financial cooperation between China and Europe.

Strategic Emerging Industries

The Belt and Road Initiative calls for participating countries to draw on one another’s strengths to attain mutually beneficial results. This involves deeper cooperation in emerging industries such as new IT, bio-tech, materials, and energy sources. Core EU countries with an excellent investment environment and a high technological level hold great allure for Chinese investment firms, to whom they offer an ideal European destination – all the more so as the Juncker Plan accords priority support to R&D, innovation and renewable energy. Chinese enterprises must participate in projects with a high degree of technological intensity so as to elevate their own technological and managerial levels and competitiveness in the global market.

In the early days of its opening-up and reform, China, lagging in industry and technology, had to rely on its sole advantage of low labor costs and prices to churn out inexpensive export commodities short on technological sophistication. Chinese manufactured products have therefore long been derided as low-end, low-tech and low-price. With its modern industrial system taking shape and industrial upgrading steadily underway, Chinese manufacturing is now making inroads into high-end sectors, and has secured its footing in independent R&D and proprietary intellectual property rights. The Chinese government has helped and goaded its businesses to engage in international production capacity cooperation in such fields as railways, nuclear power, automobiles, shipbuilding, chemistry, and metallurgy. The Juncker Plan will further this cooperation, lending wings to China’s industrial upgrade and, moreover, breathe new life into the European economy.

Though devised on the basis of respective regional conditions, the Juncker Plan and the Belt and Road Initiative employ similar approaches to fueling economic growth. Positive interaction and collaboration between them are in the interests of both, and will also hasten the recovery of the global economy.